Dismay as Corbett ends funding for tax-credit program for low-income families

Yvette Brown of Darby, with help from a Phila. nonprofit, got a federal tax credit last year of $2,248. (SHARON GEKOSKI-KIMMEL / Staff)

By Alfred Lubrano, Inquirer Staff Writer

Posted: August 16, 2012

The Corbett administration has stopped funding a program that helped low-income working people get federal tax credits that kept them out of poverty.

The program, administered by the Department of Public Welfare for just over $500,000, also helped pay for low-income workers to have their taxes prepared free, which saves people at or below the poverty line hundreds of dollars, advocates say.

The cut echoes growing concerns among Republicans in Congress about the federal Earned Income Tax Credit (EITC) and other similar measures, seen as too much government in a time of financial crisis.

That would be a reversal of decades of bipartisan support for the tax credit, once called "the best antipoverty program in America" by President Ronald Reagan.

DPW spokeswoman Donna Morgan said funding was ended "because of budgetary constraints." She added, "We felt tax services is an extra service of DPW and not a core service" during a time of fiscal difficulties.

Morgan also said that help in obtaining tax credits was available from tax preparers or from free IRS programs statewide aimed at helping the poor.

DPW's move has been met with anger and skepticism.

"It's appalling that something that helps working people would be removed just like that," said Carol Goertzel, chief executive officer of Pathways PA, a nonprofit in Holmes, Delaware County, that aids women and children.

Pathways PA had received $208,000 from DPW, while $300,000 went to the Philadelphia-based Campaign for Working Families, a nonprofit that offers financial advice to low-income families. Each agency, the only two in the program, uses volunteer, IRS-trained tax experts.

"I think the cuts are part of a general perspective of not really looking at what lower-income people really need," Goertzel said. "They're the silent minority who don't seem to matter. And they're not the ones who'll scream to the governor or march in protest anywhere."

Khadijah Jones, director of the Campaign for Working Families, said she learned - in a letter from InspiriTec in Harrisburg, a firm that processes invoices for DPW - that she'd lose her entire budget for tax work.

The letter, obtained by The Inquirer, is dated May 31 and informs Jones that all funding would be cut by June 30. Her office works with 13,000 clients on taxes and the EITC, ranking it among the top five such facilities in the United States, according to Jones.

"We really didn't have any notice," Jones said. "What will happen to all those families we help if we disappear?"

Jones said she used the $300,000 from DPW last year to obtain $20 million in tax refunds and credits for clients.

She also disagreed with Morgan's statement that taxes and tax credits were not "core" DPW issues.

The EITC "incentivizes work," Jones said. The program returns an annual national average of $2,770 in tax credits to 27 million working families with children who make less than $49,000 annually, according to the Center on Budget and Policy Priorities.

"You always hear that DPW wants people to be in the workforce," Jones said. "How better to help the workforce than to help low- and moderate-income people with taxes and credits? We are the best organization to help the core mission at DPW. We are peanut butter to their jelly."

One of the people Jones helped, Yvette Brown, 53, of Darby Borough, said she was upset to hear the service was ended.

"You're kidding," said Brown, who had her taxes done by volunteers at the campaign group, where she first learned of the federal tax-credit program. "The help is immensely valuable."

Brown, an administrative assistant at Drexel University, lives with her partner, and two children and a nephew, ages 22, 23, and 25. She makes $38,500 a year and, with the campaign's help, received an EITC of $2,248 last year. She used the money to tear up old carpeting and clean her floors to ease her nephew's asthma.

The tax credit was begun in 1975, conceived by President Richard M. Nixon and championed by President Gerald R. Ford.

Reagan later lauded it as "the best antipoverty, the best pro-family, the best job-creation measure to ever come out of Congress."

In 2010, the program lifted roughly 5.4 million people out of poverty, including three million children, according to a scholarly article by faculty members from Harvard University and the University of Illinois, and by an author from the Congressional Budget Office. The paper appeared in the February 2012 Social Service Review.

"More children now exit poverty through the EITC than through any other form of government assistance," according to the article, which stressed that the tax credit was not simply handed out, because recipients must work.

The EITC also boosts local economies, the authors found.

In recent years, the program has been expanded to offer a larger credit for families with three or more children. It has also eliminated a so-called marriage penalty in the credit.

Those changes, however, will expire this year, and House Republicans have said they did not want them renewed.

If that happens, nine million low- and moderate-income families will lose some or all of the return they get from the credit, an average loss of $850, according to the National Community Tax Coalition, a membership group for community-based organizations that offer free financial services to low-income working families nationwide.

Similarly, a provision within the Child Tax Credit is set to expire, which would result in 6.5 million of America's lowest-income families losing an average of $530, according to the coalition.

For years, the EITC was seen as a bipartisan win-win. For the left, it provided help for poor families; for the right, it championed jobs.

But lately, Republican policymakers are saying that the country should be emphasizing increased self-sufficiency and decreased government dependence, the Social Service Review paper said.

Meanwhile, antipoverty advocates point out that, while Republicans in the House are looking to make EITC improvements expire, they espouse continuation of tax cuts and inheritance benefits for well-off Americans.

Advocates say the tax credit is needed to correct inequities in the U.S. economy.

The poor in America are victimized by regressive sales and excise taxes to a higher degree than well-off people, according to the Institute on Taxation and Economic Policy, a nonprofit, nonpartisan research organization that works on federal, state, and local tax-policy issues.

"By an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy," according to an institute study.

There are 10 states that ask families in the bottom 20 percent of the income scale to pay almost six times as much of their earnings in taxes as do the wealthy, according to the institute, which counts Pennsylvania as one of its "Terrible Ten."

The Pennsylvania DPW is counting on people who normally had their taxes done at Pathways PA and the Campaign for Working Families to seek out free IRS operations or for-profit tax preparers.

That won't work, said Jones of the campaign.

"Tax preparers charge a lot, and the IRS can't absorb my 13,000 people," Jones said, "because it doesn't have the capacity." An IRS spokesman said he had no way of knowing whether IRS free tax offices could handle the increased numbers.

Jones said she hoped politicians would ultimately get behind the Earned Income Tax Credit: "It's not a Democratic or Republican thing. It's a working-families thing."